Many jurisdictions have hospital lien laws. These laws ensure payment to hospitals for the beneficial services they provide. Some jurisdictions liberally interpret these laws so that technical deficiencies in establishing or seeking enforcement do not defeat payment to the hospitals. Other jurisdictions are less likely to ignore such deficiencies.

Parties to a settlement must know when and how the lien becomes enforceable, what constitutes notice of the lien, and who is liable for the lien upon settlement of the claim, among other things. At least one court has held that an insurer's actual knowledge that a hospital had treated an injured party was not sufficient to render the insurer liable for settling with the injured party but not also settling the hospital lien. In contrast, another court imposed liability upon an insurer for the full amount of a hospital lien where the insurer settled with only the injured party when the insurer knew or should have known of the "possible" existence of a hospital lien. Cases from several jurisdictions illustrate how hospital lien laws affect settlement and how these liens may expose an insured and insurer to excess liability if an insurer fails to properly account for a hospital lien when settling a claim.

A. Florida

In Florida, some counties have local ordinances that require parties to list lienholders as payees on settlement checks. In Dade County v. Pavon, a Florida appellate court explained that "it is apparent that the . . . insurance company comes within the provisions of the [ordinance] . . . and would be liable to the . . . [hospital] upon its lien unless there are intervening defenses."(1) Thus, where the tortfeasor's insurer settled under circumstances where it knew, or should have known, to list the lienholder as a payee, the insurer was estopped from avoiding liability for the hospital lien.(2) The ordinance served to put the insurer on notice of the possible existence of the lien and placed a duty upon the insurer to not settle until the existence of a hospital lien was determined and, if one existed, to protect the lien.(3)

Other Florida counties have similar ordinances.(4) Most Florida hospital lien laws provide that a hospital lien attaches when an injured person enters the hospital, and is perfected by filing the lien within the time frame provided in the law.(5) In Palm Springs General Hospital of Hialeah v. State Farm Mutual Insurance Company, the court determined that a hospital lien automatically attached based upon language in the ordinance that a lienholder "shall be entitled to" a lien.(6) The court reasoned that, because the amount of the hospital bill changes from day to day, the hospital was not required to timely amend the amount of the lien each time the hospital bill changed.(7) Rather, the hospital was only required to file the lien after a final accounting could be done, after the final discharge of the patient.(8)

Florida courts have held that hospital liens do not become invalid when the hospital fails to file them within the time frame specified in the local hospital lien law. Instead, a hospital is simply an unsecured creditor until the lien is filed.(9) The court in Public Health Trust of Dade County v. Carroll observed that hospital lien laws are to be liberally construed to secure their beneficial purposes.(10) Technical requirements should not be applied to defeat just hospital claims.(11) Thus, in Roster v. Public Health Trust of Dade County, the court noted that a patient could not complain about a hospital lien that was untimely filed.(12) Instead, the court affirmed the trial court's ruling allowing the hospital to intervene and recover a money judgment, relying upon Carroll for the proposition that hospital lien ordinances are to be liberally applied in favor of the hospital.(13)

B. New York

New York also construes its hospital lien laws broadly. In Groth v. New York, the court held that a hospital which had filed its first lien but failed to file an additional lien within five days after the discharge of the patient, as required by New York's Lien Law, still had a valid lien.(14) The court noted that the hospital did not adversely affect anyone's rights by failing to file an additional lien showing the total hospital charges.(15) The court observed that "[n]o attempt is made to establish a lien for anything other than the first amount claimed."(16) Declaring the lien invalid would not be "construing the statute liberally to secure its beneficial purposes."(17)

In a more recent case, Simmons v. Aiken,(18) the treating hospital and the Department of Social Services (DSS) claimed liens against recovery in a personal injury action. The appellate court reversed the lower court's order vacating New York City Health and Hospitals Corporation's lien, and directed the lower court to hold a hearing as to the validity and amount of the lien.(19)

The court discussed that DSS was faced with the problem of demonstrating that some portion of the recovery from the personal injury action was fairly allocable to reimbursement of the medical and hospital expenses that DSS had to bear.(20) The court observed that the lower court would have to make that determination, and the settlement documents or the language used by the attorneys in the settlement stipulation were self-serving, chosen "merely as a means to defeat DSS' recovery."(21) As to preparing for a hearing on the matter, the court opined that limited discovery, perhaps including examination of some attorneys, would be appropriate.(22)

The court then turned to New York City Health and Hospitals Corporation's lien.(23) The hospital contended that Medicaid did not cover the infant with respect to the hospital's separate lien for the infant's care and treatment.

The court reasoned that it makes no difference to the injured party whether the hospital chooses to enforce its claim directly against the fund recovered in the personal injury action under New York's Lien Law or if DSS reimburses it, which then in turn is entitled to reimbursement out of such proceeds, if the measure of recovery were the same in either case.(24) The court described that the hospital's direct lien under Lien Law § 189 is for the entire reasonable value of its services, while DSS' recovery is limited to so much of the settlement proceeds as represents reimbursement for medical and hospital expenses.(25) The court concluded that at a minimum, the hospital, having incurred expenses for which DSS should have reimbursed it, should be subrogated to the claim DSS would have had DSS reimbursed the hospital.(26) Basically, the court wanted to ensure that the hospital as well as the Department of Social Services received payment for their services in a fair manner.

In many states, hospital liens do not apply to wrongful death settlements. Courts in New York have held that medical expenses incurred as a result of the decedent's accident and secured by a hospital lien under New York's lien law are payable from the proceeds of a wrongful death action.(27) In In re Wood's Estate, the court reasoned that, under New York's Decedent's Estate Law, the proceeds of the personal injury recovery, unlike the proceeds of the wrongful death recovery, form part of the estate of the deceased, which thus becomes liable for payment of these liens of the decedent.(28)

C. Nebraska

In comparison to Florida and New York, Nebraska takes a more constrained view of its hospital lien laws. In West Nebraska General Hospital v. Farmers Insurance Exchange,(29) the Court held that an insurer's actual knowledge that the hospital had treated a claimant did not render it liable for settling with the claimant without satisfying the lien. The Court stated that a hospital lien attaches upon admission of the patient to the hospital for treatment.(30) The hospital lien is enforceable against the injured party upon attachment, regardless of whether the hospital complies with the statute's notice provisions.(31) On the other hand, if the hospital seeks to enforce the lien against third parties, such as the tortfeasor's insurer, the hospital must perfect its lien.(32)

In this case, Kenneth Schneider was in an automobile-motorcycle accident with Janae Kehm. Schneider was admitted to West Nebraska Hospital. During his eight weeks of treatment, he incurred $31,361.07 in medical bills. Farmers insured Ms. Kehm's automobile. On June 22, 1987, Bobbie Willey, a claims representative of Farmers, and Peter Hoagland, the attorney representing Schneider, reached an agreement to settle Schneider's claims for the policy limits of $50,000. The following morning, Hoagland picked up the settlement draft from Farmers' office. At the time that settlement occurred, Willey knew of Schneider's treatment at West Nebraska and of the full amount of his medical bills.

On June 22, 1987, the same date that settlement was reached, West Nebraska's attorney mailed a letter claiming a lien in the amount of $4,412.05 to Farmers. Willey received the letter from the hospital on July 1. Farmers paid the full amount claimed in the June 22nd lien in early July 1987. Subsequently, on July 16th, the hospital sent Farmers a "supplemental hospital lien" claiming the balance due of $26,959.02.

The Court discussed § 52-401 of Nebraska's hospital lien statute that provides that when the injured party "claims damages from the party causing the injury," the statute gives the hospital a "lien upon any sum awarded the injured persons in judgment or obtained by settlement or compromise on the amount due."(33) The Court interpreted that the lien transferred a portion of the settlement to West Nebraska for the value of the services West Nebraska provided to Schneider, less a reasonable portion of the costs recovery, including attorneys' fees.(34)

The Court then noted that direct actions against liability insurance carriers based on the negligence of the insured are not permitted in Nebraska.(35) Therefore, the Court concluded that Schneider could not sue Farmers directly for his injuries.(36) The Court reasoned that if the lien statute were interpreted to transfer part of Schneider's interest to West Nebraska, then West Nebraska could not sue Farmers directly either.(37)

The Court opined that the first sentence of the statute gave the hospital a lien on any amounts the injured party received from judgment or settlement of his claims.(38) The second sentence required the hospital to perfect the lien by giving the tortfeasor notice of its existence prior to any such settlement or judgment.(39) The Court stated that, if the legislature intended the hospital lien created in the first sentence of § 52-401 to be enforceable against insurance companies, it would have required the hospital to provide them notice as well, as have many other states.(40)

The Court noted that insurance companies are not completely shielded from liability under its holding.(41) Upon perfection of a lien by a hospital, a duty arises on the part of the tortfeasor's insurer not to impair the hospital's rights under that lien.(42) If such an insurer settles directly with the injured party despite a perfected hospital lien, it has breached that duty and is liable directly to the hospital.(43)

The Supreme Court of Nebraska concluded that a hospital must substantially comply with the notice requirements of § 52-401 to perfect a hospital lien.(44) The Court refrained from drawing a bright-line test regarding what constitutes substantial statutory compliance in any given case.(45) In this case, however, it was clear to the Court that the hospital did not substantially comply with the statute's notice provisions.(46)

D. Illinois

Some jurisdictions reduce the amount of a hospital lien and require payment of attorney's fees out of the settlement funds before disbursing them.(47) Other jurisdictions uphold the full amount of the claim and will enforce a lien for its full value. Under Illinois' Hospital Lien Act, a trial court has discretion to reduce the amount of the lien but only if the total amount of liens filed exceeds the settlement amount by one-third.(48) In other words, this policy ensures that hospitals get paid the full value of their claims most of the time; however, in rare circumstances, where the liens exceed the amount of settlement by a certain percentage, a hospital may have to take a reduced amount. This ensures that the injured party receives something from the settlement. Illinois, for the most part, liberally construes liens in favor of hospitals. This is illustrated by the following two cases.

In Memedovic v. Chicago Transit Authority, the court held that a claim of a hospital lien filed more than five years after the services were rendered was not untimely because the hospital filed it prior to the distribution of the proceeds of the patient's personal injury action.(49) The hospital lien came into existence only when there was property on hand to which it could attach, and it was therefore created when the jury awarded monetary damages to the patient.(50)

In In re Estate of Cooper,(51) Cardinal Glennon Hospital of St. Louis treated Larry Cooper, a minor, for injuries he sustained in a traffic accident. Cooper's guardian settled his personal injury claim with Allstate, which paid a lump sum to cover Cooper's attorney fees, and created a fund to provide for the balance of Cooper's claim through an annuity. The hospital sought to enforce its lien against the estate of Cooper to cover the costs of his treatment. The trial court ruled that enforcement was "'premature in that there [were] no assets presently in the possession of the estate against which the lien [could] be enforced.'"(52)

The Supreme Court of Illinois expressed concerns about the appropriate time for enforcement of the hospital lien in a structured settlement scenario.(53) The Court observed that the trial court's deferred enforcement of the hospital's lien ignored the purpose of the Hospital Lien Act.(54) Preventing the hospital from collecting the full amount of its lien until the year 2010 did not further the policy of treating those accident victims who were unable to pay.(55) Accordingly, the Supreme Court remanded the case to the trial court, ordering the court to enforce the hospital lien against the estate.(56) The Court observed: "This probably will entail liquidating the annuity, paying the hospital, and then purchasing another annuity with the balance."(57)

Lastly, the Court noted that the attorneys for the estate did not get paid through an annuity, but received their fees immediately upon settlement.(58) Considering that, the Court opined that it was not proper for the structured settlement to accommodate attorney fees while ignoring a valid hospital lien.(59) The Court then admonished: "Our ruling should obviate this problem in future structured settlements."(60)

E. Indiana

Indiana provides that attorney fees will be paid first out of settlement funds and hospital liens "must be reduced on a pro rata basis to the extent that will permit the patient to receive twenty percent (20%) of the original settlement proceeds of the settlement amount."(61)

In Tankersley v. Parkview Hospital, Inc.,(62) Walter Phillips was injured in an automobile accident. Parkview Hospital treated him from May 16, 1998 to June 4, 1998. While hospitalized, Phillips hired attorney Tim Isaacs to handle his personal injury claim. Isaacs later told Phillips that he might not be able to handle the case because of a conflict of interest.

The hospital filed a claim for payment with Sagamore Insurance Company, Phillips' health insurer, which Sagamore denied. On July 2, 1998, Parkview then filed a hospital lien in the Alan County Recorder's office against Phillips for outstanding unpaid bills. On July 6, 1998, Parkview served Phillips, the tortfeasor and his insurance company, and attorney Isaacs with notice of the lien.

Unbeknownst to Parkview, Phillips had changed lawyers in the meantime. He retained attorney Kevin Tankersley on July 1, 1998. When Tankersley took over the case for Phillips, he attempted to gather the entire file from the former attorney. Despite repeated attempts, Tankersley never recovered the entire file, including the portions of the file containing notice of the lien. Because he did not know of the hospital lien statute, Tankersley did not research the Alan County Recorder's office for any outstanding liens.

On July 23, 1999, Tankersley settled Phillips' personal injury claim against the tortfeasor with the tortfeasor's insurer, Mid-Century Insurance Company, for $35,000. The proceeds went to Tankersley, who retained his contingency fee of $8,000 and distributed the remainder to Phillips. No one paid the hospital lien and Phillips had outstanding medical bills that exceeded $80,000. At the time of settlement, Tankersley did not have actual knowledge of the hospital lien.

After settlement, Parkview sued Tankersley, Phillips, and Mid-Century. Phillips eventually discharged his debt through bankruptcy. Mid-Century settled with Parkview for $15,000 and was dismissed from the action. The trial court subsequently granted Parkview's Motion for Partial Summary Judgment against attorney Tankersley on the issue of liability. The Court of Appeals reversed, holding that Parkview failed to perfect its lien, and that Tankersley did not have actual or constructive notice of the lien.(63)

The Court discussed Indiana's Hospital Lien Act, which affords a hospital the right to impose a lien against any settlement paid to a patient or to cover charges for treatment rendered to a patient.(64) To perfect the lien, the hospital must file a statement containing the patient's name, dates of treatment, amount of the claim, and the names and addresses of one who is claimed by the patient or the patient's legal representative who will be liable for damages that arise from the injury in the county where the hospital is located.(65)

In reaching its decision that Tankersley had constructive knowledge and that the lien was effective against him, Indiana's high court looked at the plain meaning of the statute, which requires hospitals to give notice to the current attorney, not subsequent or future legal representatives.(66) The Court remanded the case to the trial court to determine the distribution of funds between Tankersley, Parkview Hospital and Phillips in compliance with § 32-8-26-4 of Indiana's Code, which provides that attorney's fees will be paid first and the liens "must be reduced on a pro rata basis to the extent that will permit the patient to receive 20% of the original settlement proceeds of the settlement amount."(67)

F. North Carolina

In North Carolina Baptist Hospitals, Inc. v. Crowson, the appellate court examined whether sections 44-49 and 44-50 of the North Carolina General Statutes prohibit an attorney from disbursing funds recovered from the settlement of a personal injury lawsuit in a non-proportional manner where there are multiple medical service providers holding equally valid liens upon such settlement funds and there are insufficient funds to compensate all lienholders.(68) The court concluded that the statutes do not require a pro rata disbursement of funds.(69)

Section 44-49 of the North Carolina General Statutes creates a lien upon any sums recovered as damages for personal injury in any civil action in the state. The lien is in favor of "any person, corporation, state entity, municipal corporation or county to whom the person so recovering . . . may indebted for any drugs, medical supplies, ambulance services, services rendered by any . . . hospital, or hospital attention or services rendered in connection with the injury in compensation for which the damages have been recovered."

In Crowson, North Carolina Baptist Hospital sued Jim Crowson alleging that he had violated sections 44-49 and 44-50 by failing to disburse to the hospital certain funds that Mr. Crowson held in his capacity as an attorney. The hospital argued that it provided medical services to his client, Christopher Reid, who had been injured in an automobile accident. His total costs for treatment amounted to $38,234.85. Reid retained Mr. Crowson to represent him in a personal injury suit to recover damages for the injuries he incurred as a result of the automobile accident.

In November 1997, the hospital provided Mr. Crowson with written notice of the lien pursuant to § 44-49. The lien covered the value of those medical services provided to Reid as a result of the accident.

On February 15, 1999, Mr. Crowson informed the hospital that although Reid had reached a settlement of his personal injury suit, the funds were insufficient to compensate North Carolina Baptist Hospital. This was because Reid also owed money to two other creditors with valid medical service provider liens, Wake Forest University Physicians and the Forsyth County Ambulance Service. When Crowson received the settlement proceeds, he paid the Forsyth County Ambulance Service its balance in full and paid Wake Forest University Physician its balance almost in its entirety. Upon the payment of these two debts, no other monies remained to compensate the hospital.

The appeals court held that because Sections 44-49 and 44-50 did not require defendant to distribute the funds at issue in a pro rata manner, the trial court properly concluded that the attorney for Reid was not liable to the hospital for monies owed.(70) The Crowson court acknowledged that because sections 44-49 and 44-50 provide extraordinary remedies in derogation of the common law, they must be strictly construed.(71) This case shows that when multiple providers are lined up for payment, the hospital may not necessarily receive its fair share or any share at all toward its lien.

G. California

In a rare reported case involving bad faith and the payment of a hospital lien, the Supreme Court of California found bad faith when the insurer withheld payment of medical benefits pending further investigation before settlement.

In Silberg v. California Life Insurance Company,(72) a carrier issued a policy providing for payment of medical and hospital care resulting from the insured's injuries. The policy contained an exclusion for losses caused by injuries for which compensation was payable under any workmen's compensation law. When the insured was injured in an accident of a disputed industrial nature, the insurer refused to make payments pending resolution of the insured's claim for workers' compensation benefits. Two years later a compromise was reached in which there was a partial allowance of a hospital's claim of lien.

Plaintiff sued his insurer alleging two causes of action. Plaintiff sought a declaration that defendant insurer was liable under the policy. Plaintiff's second cause of action sought damages for physical and mental distress. Plaintiff alleged that defendant was guilty of fraud, bad faith and malicious and oppressive conduct, and he was entitled to both compensatory and punitive damages.

The Supreme Court of California held that the insurer had exercised bad faith in withholding payment of medical benefits pending resolution of the industrial nature of the injury.(73) It reasoned that the insurer could have simply paid the hospital charges.(74) If, at a later time, workers' compensation covered the injury, the insurer who paid the hospital lien could then assert a lien in the workers' compensation proceeding to recover the payments it had made and it would have been entitled to payment from the proceeds of the award.(75) Instead, the Court observed that the insurer did not explain why it failed to adopt this course in order to vindicate the promise made in the application that the policy was intended to protect the insured against medical bills which could result in financial ruin.(76)

In conclusion, the Court discussed that, although the evidence was in conflict on the issue of whether it was customary in the insurance industry to make payments under the policy in these circumstances and the order granting a new trial that declared there was insufficient evidence of such a custom, the failure to establish common practice in this regard could not absolve the insurer.(77) Under these circumstances, the Court observed that the insurer's failure to afford relief to its insured against the very eventuality insured against by the policy amounts to a violation as a matter of law of its duty of good faith and fair dealing implied in every policy.(78)

Conclusion

A brief review of decisions from several jurisdictions shows that the effect of hospital lien laws upon settlements differs widely in different states. Some jurisdictions liberally construe hospital lien laws in favor of hospitals, while other jurisdictions use stricter construction of such hospital lien laws. Some statutes impose a duty upon the injured party and that party's attorney to ensure that hospital liens are paid while other jurisdictions impose liability upon the tortfeasor and the tortfeasor's insurer to ensure that the hospital liens are satisfied in the settlement of a claim. Settling a claim and failing to account for a hospital lien may cause significant problems for the parties involved in a settlement.

Attorneys involved in personal injury settlements should be well-versed on a particular jurisdiction's hospital lien laws. A tortfeasor and his insurer may be liable to a hospital for impairment of the lien if the hospital is not paid out of the settlement proceeds after the insurer settles with only the claimant. If the hospital lien matches or exceeds the policy limits, the hospital may have a claim against the settling tortfeasor to satisfy its lien and pay for its attorney's fees and costs, exposing the insured tortfeasor to excess liability. The insurer may then be liable to the hospital for the policy limits, even if they were already exhausted. An awareness of these considerations can help to avoid bad faith on the part of the insurer.

4.Hospital Board of Directors of Lee County v. McCray, 456 So. 2d 936, 937 (Fla. Dist. Ct. App. 1984). For instance, Chapter 78-552, Laws of Florida, the special act governing hospital liens in Lee County, Florida, specifies: ". . .no release or satisfaction shall be valid as against the hospital lien unless the lienholder joins therein or executes release; providing that acceptance of release or satisfaction or any cause of action, suit, claim . . . and any settlement in absence of release or satisfaction of lien shall prima facie constitute impairment of such lien, and giving lienholder right of action at law for damages on account of such impairment, and providing for recovery from one accepting release or satisfaction to making settlement . . . ."

13. Id. at 1257. While Florida has liberal hospital lien laws, the courts have held that hospital liens do not attach to wrongful death awards. The court in Orlando Regional Medical Center, Inc. v. Estate of Herron, 596 So. 2d 1078 (Fla. Dist. Ct. App. 1992), looked to other jurisdictions, observing that the statutory beneficiaries in a wrongful death proceeding recovered for their own damages rather than for the damages to the decedent and, therefore, there was no basis for claiming that they were the legal representatives of the decedent in accordance with the terms of the hospital lien statute.

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Are all attorney-client communications contained in such claim files that were thought to be confidential now discoverable because the insurer lost the underlying first-party claim, litigation, or appeal

July 26, 2012PublicationThe Vanishing Right To Federal Jurisdiction In Bad Faith Claims In Florida

On April 25, 2012, the United StatesDistrict Court for the Southern District of Florida issued its opinion in Moultrop v. GEICO General Ins. Co., remanding a bad faith claim to state court pursuant to the one-year ‘‘repose'' provision of 28 U.S.C. § 1446(b). The Moultrop decision is one more in a growing line of cases which refuse insurers access to a federal forum based on the repose provision, under the anomalous reasoning that the right to removal expired before the cause of action for bad faith accrued. Unfortunately for the insurers, 28 U.S.C. section 1447(d) precludes appellate review of an order granting a motion to remand.

Discovery of the insurance company's entire claim file—including confidential communications between the insurer and its attorney—is often the first target on the insured's agenda in a first-party bad-faith lawsuit. In any other context, a party's request for discovery of the opposing party's confidential attorney-client communications would be viewed by courts as a brazen and inappropriate attempt to obtain information obviously protected by the attorney-client privilege; however, in the context of bad-faith litigation, this type of request has been dignified by courts who often look for ways to permit discovery of the insurer's attorney-client communications.

April 26, 2012PublicationCreative Methods Used To Set-Up ‘Bad Faith' Claims — Use Of Multiple Coverage Demands

In the past decade, the bad-faith environment has rapidly shifted from a useful tool used by consumers to protect themselves from arguably egregious actions to an elaborate trap set by personal injury plaintiff attorneys to reap outrageous awards from seemingly innocent conduct by claims professionals. Insurance companies now fear multi-million dollar verdicts based on policies written for insureds who did not want more than the absolute minimum coverage allowed. Based on technicalities, clever plaintiff attorneys attempt to convince courts to rewrite insurance policies, allowing for unlimited recoveries.

March 22, 2012PublicationA Liability Insurer's (Almost Absolute) Right To Settle Claims Without The Insured's Consent

Many cases hold that a liability insurer can settle a claim against its insured without the insured’s consent because the policy language gives an insurer the right to settle even when an insured may not want to settle.1 For the most part, courts in California, Florida, and Louisiana allow insurers to settle claims without the insured’s consent where the policy gives the insurer the right to settle as it deems expedient. However, courts may nonetheless consider whether a settlement may have adversely impacted the insured to determine whether an insurer acted in good faith.

February 23, 2012PublicationBullock v. Philip Morris USA, Inc.: Where ‘Reprehensibility' As An Exception To Constitutional Protections And the Ratio Guidepost Includes The Wealth Of The Defendant

On November 30, 2011, the California Supreme Court exercised its discretion and let stand a $13.8 million punitive damage award that was more than 16 times the compensatory damages awarded by the jury. The case, Bullock v. Philip Morris, 1 (Bullock) involved a smoker diagnosed with lung cancer who filed suit against the cigarette manufacturer, seeking damages based on products liability, fraud, and other theories.

January 26, 2012PublicationWho Killed Reverse Bad Faith? And Why It Could Make A Comeback

In every state in the union an insured can seek some form of compensation for an insurer’s ‘‘bad faith’’ in adjusting a claim.Yet only one state, Tennessee, currently allows an insurance company to recover damages caused by the insured’s bad faith.This imbalance has allowed ‘‘bad faith’’ litigation to become big business.The tendency of courts to treat insureds like a disadvantaged class has created an uneven playing field for insurance companies in claims adjustment.

November 23, 2011PublicationProximate Causation In Third-Party Bad Faith: Not Every Bad Decision Is A Bad-Faith Suit

Proximate causation is an element of a claim for bad faith. An often-overlooked element, but an element nonetheless. Even claims with grievous claim-handling errors and high excess judgments can still be very defensible if there is no proximate causation between the two. This article examines the element of the bad-faith cause of action that is most often glossed over.

August 25, 2011PublicationApplying The Litigation Privilege In Bad-Faith Cases

[BrianD.Webb,Esq.,is a partner with the law firm of Butler Weihmuller Katz Craig LLP, which has offices in Tampa, Chicago, Charlotte, Mobile, Tallahassee, and Miami. He is an experienced trial and appellate attorney specializing in extra-contractual and complex coverage litigation. This commentary expresses the author's opinions–not the opinions of Butler or Mealey's. Copyright#2011 by Brian D. Webb. Responses are welcome.]

[Editor's Note: Alan J. Nisberg is a partner in the Tampa office of Butler Weihmuller Katz Craig LLP, which also has offices in Chicago, Charlotte, Mobile, Tallahassee, and Miami. He is an experienced trial attorney and appellate lawyer, specializing in extra-contractual, class action, and complex coverage litigation. This commentary, other than the quoted material, expresses the author's opinions - not the opinions of Butler or Mealey's. Copyright#2011 by the author. Responses are welcome.]

February 24, 2011PublicationThe Duty to Initiate Settlement Negotiations: Where Does it Begin and How Far Does it Go

In some jurisdictions, including Florida, the courts recognize a duty in some circumstances for a liability insurer to initiate settlement negotiations with a third-party claimant before the claimant has ever made a demand. This duty is a relatively recent invention in the common law and has yet to be fully defined. While most articles on the subject tend to focus on whether or not this duty should exist in the first place, this article skips that threshold question and delves into the particulars that apply in the jurisdictions that recognize it. What triggers the duty? What is required of the insurer to discharge it? What are the defenses to a claim for bad-faith failure to initiate settlement negotiations? This article tackles these emerging questions and more in attempt to define this nascent duty.

[Editor's Note: Laura A. Turbe-Capaz is a senior associate in the Tampa office of Butler Weihmuller Katz Craig LLP, which also has offices in Chicago, Charlotte, Mobile, Tallahassee, and Miami. She is an experienced trial attorney in the firm's Extra-Contractual, Third-Party Coverage, and Liability Departments. Copyright#2011 by Laura A. Turbe-Capaz. Responses are welcome.]

May 13, 2010Publication(Almost) Twenty Years After Powell: Case Studies On A Liability Insurer's Duty To Initiate Settlement Negotiations

The Florida Third District Court of Appeal’s 1991 decision in Powell v. Prudential Property & Casualty Insurance Co. recognized a duty, in some circumstances, for a liability insurer to initiate settlement discussions with a third-party claimant who has not made a demand. The case proved to have a strong ripple effect, bringing about a sea change in bad-faith jurisprudence for the next twenty years. This article examines the expansion of Powell from a unique facts-driven anomaly to an entire branch of bad-faith jurisprudence and discusses early indications that the courts may be retreating again to applications more in line with the original case.

Insurance intermediaries (insurance agents and insurance brokers) are especially vulnerable to claims by insureds. While bad-faith actions continue to be the favored method of pursuing recovery beyond a policy limit, some litigants turn to claims against insurance intermediaries (and the insurers they represent) for extracontractual recovery. In addition to bad-faith law, insurers need to know what kinds of claims can be brought in relation to the procurement of the insurance policy itself and what defenses can be raised. This article delves into this often-misunderstood area of the law and illuminates some legal issues with which every insurer should be familiar.

October 22, 2009PublicationDoes An Insured Owe A Duty Of Good Faith To Its Insurer When The Insured Is Responsible For Defense Costs In A Self-Insured Retention?

Many businesses are increasingly utilizing insurance policies with large self-insured retention endorsements in order to exercise better control over the defense of claims. In these circumstances, an issue may arise regarding whether an insured who is responsible for defense costs under a self-insured retention ("SIR") owes a duty of good faith to its insurer.

On August 5, 2009, the South Dakota supreme court joined an exceedingly small minority of courts in the United States that have imposed a duty to conduct a reasonable investigation into first-party claims in order to avoid "bad-faith" liability.2 As they say, the road to Hell is paved with good intentions. This decision certainly affirms the truth of that old saw

July 30, 2009PublicationWrit Of Certiorari Dismissed As Improvidently Granted -- The Ambiguous End To Philip Morris USA, Inc. v. Williams

On March 31, 2009, the United States Supreme Court dismissed, as improvidently granted, a writ of certiorari in Philip Morris USA, Inc. v. Williams. While the reason for the court's action remains a mystery, it seemed to signal an end to the court's interest in the central constitutional issue in the case: punitive damages. Unfortunately, the court's decision to abandon the issue leaves both the litigants and observers wondering what, if anything, had been gained by years of decisions, reversals and remands.

In Grilletta v. Lexington Insurance Company,8 the United States Court of Appeals for the Fifth Circuit reviewed the insurer's handling of a Hurricane Katrina property claim.9 Mr. Xavier Grilletta and Mr. Randy Lauman owned a vacation lakehouse on the southeastern shore of Lake Pontchartrain, a lake bordering New Orleans to the north.

The scene is all too familiar: an insured, disenchanted with its insurer's refusal to defend an action the insured believes is within coverage, decides to enter into a "consent judgment" with the plaintiff, in return for which, the plaintiff agrees only to pursue satisfaction of the "judgment" against the insurer.

August 28, 2008PublicationTorts for Tots (Bad Faith And Other Independent Torts)

The responsibility of caring for a child is not one to be taken lightly. Our society demands vigilance from those who bring new life into rld, and rightly so. We are held to a higher standard in dealing with our offspring than with others. The special relationship between a parent and a child is built upon trust and an expectation that one (the parent) will give security tothe other (the child). So too is the bond between insurer and insured.

July 15, 2008PublicationExxon Shipping Co. v. Baker: Sailing Into The Confluence Of Common Law And Constitutional Standards For Punitive Damages

On June 25, 2008, the United States Supreme Court issued its much anticipated opinion in Exxon Shipping Co. v. Baker. The Supreme Court reduced the punitive damage award from $2.5 billion dollars to $507 million dollars, an amount approximately equal to the jury's award of compensatory damages. While the decision certainly warmed the hearts of Exxon's previously discomfitted stockholders, the Court's opinion provides only limited encouragement to defendants involved in the current punitive damage lottery.

June 17, 2008PublicationConsequential Damages Under the Insurance Contract -- The New "Bad Faith?"

The ability of an insured to recover consequential damages under an insurance contract allegedly caused by failure or delays in the insurer making payments has traditionally been controversial. Jurisdictions have been divided in their approach as noted in the following annotation cited by the district court in Indiana

January 22, 2008PublicationRipe for Campbell Review: A Florida Uninsured Motorist Claimant's Statutory Right to Recover Excess Verdict Damages in a Bad Faith Action

In many jurisdictions, jurors can award punitive damages to punish or penalize an insurer for improper claims handling, in addition to any compensatory damages caused by an insurer’s bad faith. Such jury awards of punitive damages now are subject to scrutiny under State Farm Mutual Automobile Insurance Company v. Campbell.1 As a result of Campbell, insurers have one final check against excessive punitive damages awards by juries.

December 18, 2007PublicationPunitive Damages - the Rationale of Ratios

Since the Supreme Court’s decision in State Farm Mutual Automobile Insurance Company v. Campbell, courts have struggled to define when the Campbell court’s presumptive limit of 9 to 1 ratio of punitive damages to compensatory damages is appropriate. The Supreme Court stated that the "most important indicium of the reasonableness of a punitive damages award" was the highly subjective measure of the "degree of reprehensibility." Wrestling with such an amorphous concept trial courts and appellate courts have sought to justify various punitive damage awards on the basis of a sliding scale, doing little more than subjectively comparing the "reprehensibility" in the case being reviewed, to other recent cases decided before it. The result is a marked disparity from one court to the next as to what constitutes behavior falling within the five (5) factors of reprehensibility discussed in Campbell.

On February 20, 2007, the United States Supreme Court issued its much-anticipated second opinion in the negligence and fraud suit brought by the widow of Jesse Williams against Philip Morris. Mrs. Williams had asserted that the company had purposefully taken actions to obscure the dangers of smoking and, as a result, her husband was deceived into believing smoking was not harmful, a 47 year delusion that ultimately led to his illness and death.

On December 21, 2006, the Florida Supreme Court released its opinion in Dadeland Depot, Inc. v. St. Paul Fire & Marine Ins. Co.[FN1] In Dadeland, a bare majority of the high Court, led by Justice Lewis, held that an obligee under a performance bond qualifies as an "insured" within the meaning of section 624.155, Florida Statutes (1999). The Court's decision resulted from the following question certified to it by the Eleventh Circuit Court of Appeals:

September 19, 2006PublicationRemanded in Light of State Farm v. Campbell: The Opportunity For Further Illumination Presented by Williams v. Philip Morris Inc.

On May 30, 2006, the U.S. Supreme Court again granted a petition for writ of certiorari in the ongoing dispute between Philip Morris and the widow of Jesse Williams, an Oregon resident who died of lung cancer after smoking cigarettes for about 47 years.

Under liability insurance policies, insurance companies assume the obligation of defending their insureds. In so doing, carriers can settle and foreclose their insured's exposure or refuse to settle, leaving the insured potentially exposed to damages that exceed the policy limits. Most courts find that this obligation places insurers and insureds in a fiduciary (or fiduciary-type) relationship. Accordingly, courts recognize that an insurer owes a duty to the insured to refrain from acting solely on the basis of the insurer's own interests in settlement. This duty extends to situations where an insurer has an opportunity to settle a third-party liability claim against its insured within policy limits and requires an insurer to pay an excess judgement against an insured, where the carrier in good faith should have settled.

Insurance "bad-faith" is recognized throughout the United States. In the setting of first-party property insurance, the relationship between the insured and insurer commences contractually. However, that contractual relationship can also provide exposure for tort damages in a first-party "bad-faith" action. Indeed, the threat of facing a first-party property "bad-faith" tort action commonly influences insurers to resolve litigation out of fear, rather than for substantive purposes based on the merits. One of the "Achilles' Heels" of such causes of action is the inability of the insured to prove any measurable "bad-faith" damages. The identification and measurement of "damages" in first-party property "bad-faith" actions varies greatly depending on the jurisdiction. This commentary will discuss certain jurisdictional differences relating to damages in first-party "bad-faith" actions, exclusive of punitive damages.[FN1]

February 21, 2006PublicationThe Implied Covenant of Good Faith and Fair Dealing

Until the 20th Century, insurance contracts were treated the same as any other contract, with recovery generally limited to the damages contemplated by the parties when they entered into the contract. Insurance contracts, like any other, were enforced by their explicit terms, and courts were reluctant to substitute their own judgment for the terms upon which the parties agreed absent some independent tort or injustice. By the end of the 19th Century, however, the judiciary in the United States began to recognize a general obligation of good faith performance implied in every contract. By the 1930s, the implied covenant of good faith became a standard doctrine. This duty of good faith and fair dealing originated to resolve disputes over agreements that were not explicit on pivotal contract terms, or left discretionary power in the hands of one of the contracting parties.

June 07, 2005PublicationAn Insurer's Liability For Punitive Damages In An Excess Judgment

Ging v. American Liberty Insurance Company, 423 F.2d 115 (5th Cir. 1970) is a case often cited for the proposition that third party insurers who act in bad faith could be held liable for punitive damages awarded against their insureds. However, the strength of this proposition appears to depend upon the extent to which a jurisdiction would permit the insurability of punitive damages. Those jurisdictions that permit coverage for punitive damages would also likely permit recovery of those damages later as a result of the carrier's bad faith. Jurisdictions whose public policy precludes insuring against punitive damage awards, may be more reluctant to permit recovery in a later bad faith action, depending upon the nature of the liability giving rise to the punitive damage award.

Dealing with punitive damage claims is like driving down a road that is constantly under repair. The road is dangerous, uncomfortable, and full of detours. Although the United States Supreme Court has issued a rather clear and accurate map to help us through this rocky road, in some respects the map is already outdated, just as the road darkens and your interior auto light dims.

Imagine your insured is at fault in an accident that kills her and causes devastating injury to another individual. You (the insurer) fail to meet a settlement demand within policy limits. Liability is clear and excess exposure is inevitable. The claimant files a civil lawsuit naming the "estate" of the insured as the defendant. However, the estate of the insured is not set up yet. Having no entity to actually serve with the complaint, the claimant petitions the probate court for administration of the decedent's estate, has a personal representative appointed, and immediately serves legal process on that representative. A multi-million dollar excess judgment is obtained in the civil action.

January 18, 2005PublicationPiece Of Mind: The Utah Supreme Court's Response To Campbell

Given that the Utah Supreme Court (“Utah”) previously reinstated a $145 million punitive damages award in favor of the Campbells, it is not surprising that on remand from the U.S. Supreme Court, this same state high court goes to great lengths to justify the largest punitive damages award it believes could possibly survive further constitutional review.

In Liggett Group Inc. v. Engle, the Florida's Third District Court of Appeal reversed the largest punitive damage award in history. The circumstances of the award indicate it would have bankrupted the defendants and was, in essence, a civil death sentence. If that were the only error, Engle would merely mark another notch in the continued upward spiral of American jury awards. However, the compounded procedural and constitutional errors in Engle make it particularly useful for those who wish to examine the pros and cons of the current system of punitive damages.

January 21, 2004PublicationDo Liability Insurers Have A Duty To Make An Offer Where There Is No Claim Against The Insured?

A liability insurer has a duty to handle and settle claims made against its insured in good faith. Courts have grappled with whether this duty requires an insurer to make a settlement offer when there is no claim against the insured.

Everyone knows that an insurer has to act in good faith to its insured when settling claims with third parties. However, when an insurer is faced with multiple claims exceeding the limits of coverage, the insurer is faced with tough choices. Insurers are frequently called upon to defend these choices in “bad-faith” actions. Can an insurer get summary judgment on the issue of “bad-faith” in multiple claimant/inadequate limits cases? Will the insurer be forced to litigate the “bad-faith” issue through a trial? This article attempts to answer these questions and provide guidance to insurers on meeting their duty of good faith when met with multiple claims, the sum total of which exceed policy limits.

It has long been accepted that parties to an insurance contract have an obligation to deal with each other fairly and in good faith. As early as 1914, this obligation was found to be grounded within an implied covenant within the contract between the insurer and its insured. If a denial of benefits under the policy was ultimately resolved by a suit on the contract of insurance, a policyholder who prevailed would receive the amount due plus interest. The recognition of a cause of action for the tortious breach of the duty of good faith and fair dealing in the context of the first-party contract of insurance is relatively recent.

July 16, 2003PublicationWhat is a "Reasonable" Settlement When There Are Multiple Claimants?

Sometimes several people sustain injuries in an accident. This article addresses a recent decision of Florida's Fourth District Court of Appeal, Farinas v. Florida Farm Bureau General Insurance Company, that discusses what liability insurers should do when several people sustain injuries in an accident caused by the insured and the value of most, if not all, of each individual claim exceeds policy limits. This article discusses the basis for the Farinas holding and identifies some questions raised by Farinas.

Once again the annual “hold-your-breath” season is upon us. In Hartford, New York, and London weather channels are beating “sitcoms” on the “Nielson” ratings. Internet strikes on weather.com are out-numbering those for kournikova.com – well, maybe this is a slight exaggeration. But the point remains; that is, CAT losses, especially windstorm, commonly called Hurricanes, make or break a property insurer's profitability, not just in the year of the occurrence, but typically with a two to three year tail.

In most every jurisdiction, the basis for a claim of insurer bad faith is the recognition of a duty of good faith and fair dealing inherent in any contract of insurance. See, e.g., Boston Old Colony v. Gutierrez, 386 So. 2d 783 (Fla. 1980). The focus in such cases is usually the question of whether or not the insurer has violated that duty. Inevitably, the question arises as to whether or not the actions of the insured can be considered bad faith and, if so, whether such actions can be raised as an affirmative defense to a claim of insurer bad faith.

The involvement of legal counsel to provide advice concerning the settlement of property and liability claims has become increasingly commonplace. This is primarily due to the general proliferation of litigation and specifically "bad-faith" claims. As the involvement of legal counsel becomes more prevalent, so does the "defense" of "advice of counsel." This commentary will address this so-called "defense" in the context of "bad-faith" cases.

February 19, 2003PublicationInstitutional Bad Faith: Individual Or Class Action Litigation (All For One? - Or - One For All?)

In 1844, Alexandre Dumas, one of the most famous French writers of the nineteenth century, shared his vision of comradery and unified ambition. In his classic, The Three Musketeers, set under the seventeenth century rule of Louis XIII, a small association of elite combatants swore their allegiance to a common purpose . . . and to each other: All for one, and one for all! Is this sense of nobility and uniformity present in the battle cry of plaintiff lawyers brandishing their swords in modern day litigation against the insurance industry?

December 18, 2002PublicationCan It Be 'Bad Faith' For An Insurer To File A Declaratory Action?

In recent months, insurance company clients of the author have faced allegations that the filing of a declaratory action, by an insurer, to determine or cut off coverage, is bad faith. This is a somewhat novel and, as it turns out, disfavored cause of action. To begin with, a “declaratory judgment action is the preferred manner of deciding a dispute between an insured and insurer over the construction and effect of the terms of the insurance contract.”

Insurers find nothing more frustrating than paying for unearned indemnification dollars. In a first-party context this may result from unreported values causing a deflated premium. In other words, the insurer's actual exposures require more premium than charged -- usually over many policy years. In a third-party context this unearned protection is the result of an excess judgment that the liability carrier is required to pay. In most jurisdictions this is the consequence of the liability insurer's failure to settle within policy limits when it had the opportunity to do so.

What happens when an insurer's employee, insured, adjuster or attorney alters or destroys critical evidence? Can spoliation of evidence also constitute bad faith? Although there is no published decision directly on point, it appears that some courts may be willing to extend an insurer's exposure to include extra-contractual damages for such conduct

“The insurer does not . . . insure the entire range of an insured's wellbeing outside the scope of and unrelated to the insurance policy, with respect to paying third party claims. It is an insurer, not a guardian angel.”

Two recent state court decisions jeopardize the right of insurers to consult legal counsel when considering whether to pay or deny the claim of a policyholder. The Arizona and Ohio state supreme courts have issued opinions eroding, even abrogating, the attorney client and work product privileges. In one of these decisions, Boone v. Vanliner, 744 N.E.2d 154 (Ohio 2001), the insurer has petitioned the United States Supreme Court to issue the writ of certiorari, hear the case and reverse the Ohio Supreme Court. The undersigned urges the United States Supreme Court to take the Vanliner case for the reasons stated below.

Coverage determinations regarding the nature of policy duties that liability insurers owe to additional insureds may create bad faith exposure for the unwary insurer. Bad faith liability frequently arises when an insurer fails to recognize the scope of defense and indemnification obligations it owes to an additional insured. Issues also arise when additional insureds compete with named insureds for limited policy proceeds which cannot adequately protect the interests of both. This article highlights the source of the dilemma – the scope of the coverage afforded to an additional insured – and provides illustrations of bad faith exposure in the wake of claims asserted against additional insureds.

April 18, 2001PublicationResolution of the Underlying Claim as a Prerequisite to Bad Faith

In every jurisdiction that has considered the issue, a claim for bad faith does not accrue until there has been a final determination of the underlying claim for insurance benefits or third party damages. Taylor v. State Farm Mutual Automobile Ins. Co., 913 P.2d 1092 (Ariz. 1996); Blanchard v. State Farm Mutual Automobile Ins. Co., 575 So. 2d 1289 (Fla. 1991). Thus, before a plaintiff can sue an insurance company for bad faith, he must first finally resolve the claim which he contends the insurance company failed to settle in good faith. What constitutes a resolution of that claim varies with the type of claim asserted and the jurisdiction in which it is brought, but it can generally be broken down into three categories: excess judgment, settlement of the underlying claim, and judgment below policy limits.

We have seen, in recent years, a spate of actions for bad faith, and class actions, on the issue of so-called diminished value. These suits claim payment by the insurance company of the actual cash value of a property loss - or the cost to repair a loss - does not make the insured whole. This is because of some intangible quality in the property that cannot be restored by repair. Before the loss it was pristine or original. Afterward it is corrupted or compromised. It is worth less in the market.

February 21, 2001PublicationPossible Bad Faith In The Allocation Of Coverage For Third Party Continuous Loss Claims

An insured causes damage or injury that results in a third party claim for continuous loss spanning three years. The third party makes a claim under the policy in effect at the time of the loss. The policy covers the same three years as the loss and provides $300,000.00 for each year. In other words, the policy provides a total of $900,000.00 aggregate coverage over three years. We will assume the claim is settled for $300,000.00.

October 24, 2000PublicationRaising the Coverage Defense in the Bad Faith Case

In representing insurers in bad faith litigation, from time to time one will find a coverage issue that was not raised in the underlying litigation. The question to be addressed in this article is whether the coverage issue may be raised for the first time as a defense to the bad faith litigation.

It is beyond dispute that the duty to defend, under liability insurance, is contractual, and is broader than the duty to indemnify. National Grange Mut. Ins. Co. v. Continental Cas. Ins. Co., 650 F. Supp. 1404 (S.D.N.Y. 1986). Even if some allegations of the complaint clearly are outside the scope of coverage, the insurance company is obligated to defend the entire suit. Id. See also, Aerojet-General Corp. v. Transport Indemnity Co., 948 P.2d 909 (Cal. 1997).

July 25, 2000PublicationLevel The Playing Field: Abate Or Stay The Bad Faith Action Pending Resolution Of The Underlying Liability Or Coverage Case

Before resolution of a first-party action for coverage or a third-party action to establish an insured's liability, a plaintiff will often initiate an action for bad faith. By doing so, the plaintiff attempts to gain an unfair advantage in discovery and at trial. This article outlines some of the reasons why the bad faith action should be abated in its entirety or, at the very least, stayed pending resolution of the underlying claim.

Mr. Lesser is a prominent public adjuster. His business office is located in Miami Beach, Florida. The views and opinions stated by Mr. Lesser in this interview are his own. Neither Mr. Craig, nor Butler , necessarily approve or agree with any of them.

May 19, 2000PublicationContractors' Bonds: Who Can Sue The Surety For Bad Faith?

A contractor's performance and payment bond creates rights and obligations among three parties ­ the principal, the obligee and the surety. The principal may be the general contractor or a subcontractor. The obligee (under a performance bond) usually is the owner of the project or (under a payment bond) the subcontractors, materialmen and equipment suppliers. The surety most often is an insurance company or financial institution engaged, among other things, in the business of issuing performance and payment bonds.

April 18, 2000PublicationThree Reasons Why Loss Reserves Ought Not Be Admissible In A Bad Faith Case

In the trial of a bad faith case, plaintiff often tries to put into evidence the reserves the insurance company set for the claim. This article contends that evidence ought not be admissible. It will outline three reasons why not.

March 01, 2000PublicationIssue Revisited: Who Can Sue The Surety For Bad Faith Under A Construction Bond?

In this journal, in May 2000, the author discussed the then recent decision in Ginn Construction Co. v. Reliance Insurance Co., 51 F. Supp. 2d 1347 (S.D. Fla. 1999). He argued that, contrary to a suggestion in Ginn, an obligee under a general contractor's performance bond ought not be allowed to sue the surety for bad faith. This article will look at some decisions handed down since. The trend is toward no bad faith liability by a surety to either an obligee or a principal under a surety bond.

The Scenario

Consider a common scenario. An insurance company issues a liability policy. The policyholder does something, or fails to do something, as a result of which a partyis injured. The injured party becomes the plaintiff, and the policyholder the defendant,in a tort action. The insurance company reviews the tort action and sees right awaythat probably it is not covered. It retains a defense attorney to handle the tort action butsends a reservation of rights letter to the policyholder and files a separate declaratoryaction to determine coverage. So far so good. See, e.g., Insurance Co. of the West v.Haralambos Beverage Co., 195 Cal. App. 3d 1308, 1319 (1987).

November 16, 1999PublicationWhy A First Party Insurer Is Not A Fiduciary

Courts, commentators, lawyers and others have applied the word "fiduciary" to insurance companies and insurance claims in a loose manner. The result has been bad law and confusion over if and when an insurer is a fiduciary. This article will argue that an insurer does not, and ought not, owe a fiduciary duty to an insured who has presented a first party claim.

October 19, 1999PublicationThe Duty of Good Faith: Continuing Into Litigation

First-party bad faith cases are typically based on conduct or events (e.g., settlement offers, investigations and evaluations) occurring during the time period after a claim is made but before any litigation is commenced. Once a breach of contract or declaratory action is filed, it is generally understood that the insured and insurer stand in an adversarial relationship which presumably entitles each party to zealously pursue its litigation tactics and strategy. Thus, courts generally will not permit an insurer's litigation conduct to be admitted as evidence of bad faith. Over the years, however, a significant number of courts have held an insurer owes a continuing duty of good faith to an insured throughout the litigation process and, therefore, an insurer's post-filing conduct may be admitted as evidence of bad faith. This article is a brief review of some of the leading cases addressing the continuing duty of good faith and its ramifications affecting insurance companies and defense counsel.

September 21, 1999PublicationGood Faith Settlement of Claims in Excess of Policy Limits Against Multiple Insureds

Introduction

Insurers and insureds alike may find themselves in the dark when claims against multiple insureds exceed policy limits. Only a few jurisdictions explicitly have addressed how policy proceeds should be allocated in this situation. The jurisdictions that have addressed the issue have split into two general camps. Some hold that carriers must allocate proceeds proportionately among all insureds. Other jurisdictions hold that a carrier need only act in "good faith" and may settle on behalf of fewer than all insureds. The manner of proportional allocation and the characteristics of a "good faith" settlement under such circumstances are not well described in the case law.

When courts and state legislatures expand the duties owed by liability insurers to insureds there is a commensurate expansion of the grounds for extracontractual claims. One area of expansion has been in cases involving multiple third-party claimants - with liability clear and damages exceeding the policy limits. These cases make difficult issues for claims professionals.

July 20, 1999PublicationAdvice of Counsel: Insurance Companies' First and Last Line of Defense / Mealey's Litigation Reports: Bad Faith

The dynamic nature of bad faith law throughout the country practically mandates that insurers have ongoing legal advice to protect the interests of the company, the shareholders and all insureds. Such advice can prevent unwitting misconduct by the insurer. The "advice of counsel defense" in the context of insurance bad faith litigation issimply an insurer asserting, as proof that it did not act in bad faith, that it reasonably relied on the advice given by its legal advisors.

July 01, 1999PublicationStandard of Care in First Party Bad Faith Actions: Is "Fairly Debatable" Fair?

Since the early 1970s, when first-party bad faith actions came into being, a considerable body of law has developed on the standard of care for insurers to avoid liability. In creating and defining such standards, courts have struggled to balance the interests of insureds and insurers. This article is a general review of those decisions and standards.

March 16, 1999PublicationStatute of Limitations in a Bad Faith Action: Which One Applies and When Does It Accrue?

Determining which statute of limitations governs a cause of action against an insurer for bad faith is complicated. It depends on whether the action is a first or third party action. It depends also on whether the controlling jurisdiction deems the action to be one sounding in tort or contract.

January 19, 1999PublicationDuty of Insurers to Advise Insureds of Policy Benefits

This article considers whether an insurer has a duty to advise an insured of policy benefits not claimed. Some courts require insurers to protect an insured's interests affirmatively by informing the insured of available benefits. Other courts have refused to impose this duty upon insurers. Recent cases suggest a trend toward imposing this duty.

During the past year, numerous areas in the United States have experienced severe and, at times, unprecedented flooding. Whether the flooding occurred as a result of the active Atlantic hurricane season or the effect of "El Nino" on national weather patterns, the result for insurers is the same: an increase in the number of claims under flood insurance policies. With this comes a corresponding increase in the likelihood of extracontractual or bad faith claims.

December 14, 1998PublicationSupplement to Federal Preemption of Extracontractual Claims Under Flood Insurance Policies

This is a supplement to the December 1998 article published in Mealey's Litigation Reports: Bad Faith on "Federal Preemption of Extracontractual Claims Under Flood Insurance Policies" following the U.S. Third Circuit Court of Appeals reversal of its decision on rehearing in Van Holt v. Liberty Mutual Fire Insurance Co. This supplement was originally published in Mealey's Litigation Report: Bad Faith, Vol. 12, #18, p. 27 (Jan. 19, 1999). Copyright Butler 1999.

Bad faith litigation is complex and the stakes are high. In such cases, the discovery process has become critical as litigants struggle for advantage. The litigation often raises issues outside the facts of the particular case or claim. The conduct of the insurance company as a whole sometimes is placed on trial.

October 20, 1998PublicationDoes a Liability Insurer Have a Duty to Initiate Settlement Negotiations?

Liability insurance policies typically provide the insurer with complete control over the defense and settlement of third-party claims against the insured. This control imposes upon the insurer a duty to exercise good faith in settling claims. When the claimant makes a reasonably prudent offer to settle within the policy limits, courts generally agree the good-faith duty owed an insurer will require the insurer to settle the case.

The substantive law of bad faith is not uniform from state to state. Some states treat bad faith as a breach of contract; some as a tort. In some states, punitive damages are available. In others, they are not. Some allow claims for emotional distress, while others reject them.

July 21, 1998PublicationRecovery of Damages for Emotional Distress in Tort, Contract and Statutory Bad Faith Actions

Emotional distress damages may be the most significant aspect of any bad faith action in jurisdictions that allow them. This article outlines the several theories that justify the recovery of such damages. It discusses also the impact of a recent Florida Supreme Court decision which authorized recovery for emotional distress under that state's bad faith statute.

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